Early Thoughts on the New FTC/DOJ Policy for ACO Antitrust Enforcement

Sarah O'Hara, Health Care Advisory Board

As most are probably aware, the Centers for Medicare and Medicaid Services (CMS) last week issued its proposed rules for the Medicare Shared Savings Program, defining criteria for groups hoping to become accountable care organizations (ACOs). And as you may also know, the Federal Trade Commission (FTC) and Department of Justice (DOJ) concurrently issued a new policy on antitrust enforcement of those ACOs. Our team is still combing through the many pages of ACO-related regulations to pull out the insights most relevant to Clinical Integration (CI) programs, but wanted to pass along some of our early observations about the impact of the new antitrust policy.

What's behind the new FTC/DOJ policy?

First, some background about the new antitrust policy, starting with why it was issued at all and then examining what it actually entails. (Caveat: the following discussion does not constitute legal advice, and the Advisory Board strongly encourages members to seek further guidance in this area from professional legal counsel.)

The new FTC/DOJ policy, issued at the same time as the CMS rules, represents an explicit recognition by all three agencies that:

There is significant overlap between the new ACO eligibility criteria and the standards historically used by FTC and DOJ to analyze the antitrust acceptability of CI programs.

Providers are unlikely to invest in building ACOs unless they can also use them for commercially insured patients.

Concern exists in the commercial space that the movement toward ACOs could lead to market consolidation that harms consumers through higher prices.

Given these factors, the three agencies say, they felt that coordination was needed to ensure that antitrust concerns in the commercial market did not become a roadblock for Medicare's implementation of the Shared Savings Program. As the CMS regulation notes, "The certainty created by harmonizing our eligibility criteria with antitrust requirements will help to ensure that an ACO organization participating in the Shared Savings Program will not subsequently face an antitrust challenge that its conduct is per se illegal, which could prevent the ACO from fulfilling...its agreement under the Shared Savings Program."

What does the new FTC/DOJ policy say?

The FTC/DOJ policy defines three tiers for antitrust scrutiny of ACOs, based on market share:

Safety zone: Organizations with less than 30 percent market share in all "common services" (meaning services that are provided by two or more otherwise competing ACO participants, such as separate cardiology groups) and in all markets where the ACO operates need not seek FTC or DOJ approval to use their ACO with commercial patients. The antitrust agencies will not challenge the collaboration, "absent extraordinary circumstances."

Optional review: Organizations with between 30 percent and 50 percent of market share in all common services in all markets are not required to seek antitrust review before using the ACO for commercial patients, but may do so if they choose.

Mandatory review: Organizations with greater than 50 percent market share for any common service in any market must get antitrust sign-off from the FTC or DOJ before CMS will approve the ACO as eligible for the Medicare Shared Savings Program.

Much more detail is included in the FTC/DOJ policy about how to define common services and calculate market share. In addition, the policy lists out five types of conduct that an ACO falling in the "optional review" zone should avoid to "reduce significantly the likelihood of an antitrust investigation," such as requiring that commercial payers contract with all providers in a health system even if some of them are not in the ACO. Although the guidance technically applies only to ACOs, it provides more specific antitrust guidance around provider collaborations than has been released before, and is worth reading for CI programs even if they are not planning to apply for ACO status.

For organizations that fall into the mandatory review zone, having high market share does not automatically mean that the antitrust agencies will reject the ACO. Rather, the agencies say, it's an "indication of the potential for competitive harm," and the FTC or DOJ will need to probe further to make sure that the collaboration will not have undue market power or lead to higher costs/lower quality for patients.

Note also that this level of collaboration between the FTC/DOJ and CMS is extremely unusual. Antitrust is normally not a major concern for Medicare, which sets its prices from the federal level and is not influenced (directly) by competitive dynamics in an individual market. By requiring organizations to receive FTC or DOJ blessing before they can qualify as ACOs, CMS links eligibility for a Medicare program to antitrust impact in the commercial market. Says Robert Leibenluft, a D.C.-based attorney with the law firm Hogan Lovells LLP, "It's unprecedented for CMS to include as part of its regulatory process advance approval from the FTC or DOJ. The antitrust agencies typically are law enforcers that prosecute anticompetitive conduct. This makes them akin to regulators with respect to ACO market power."

Does the new policy change antitrust standards?

Though much has been made about the new DOJ/FTC policy, it does not actually represent a major departure from the current antitrust stance toward provider collaborations. The FTC and DOJ have historically defined two "safe harbors" from antitrust law that allow providers to collectively negotiate with commercial payers: financial integration, in which providers enter into risk-sharing payment arrangements such as capitation, and CI, in which providers make a shared investment in performance improvement initiatives and infrastructure that leads to care efficiencies. The new FTC/DOJ policy does not add another safe harbor to this list.

Rather, the policy represents an application of the analysis traditionally used in determining whether CI programs pass antitrust muster. That analysis typically considers three factors:

1. Are the providers legitimately integrated and likely to achieve the efficiencies they claim? The new policy implies that organizations capable of meeting CMS' ACO eligibility criteria--which are highly prescriptive around quality improvement, performance tracking, care management and many other factors--are likely to be capable of passing this test if they apply the same processes and standards in the commercial market.

2. Is commercial joint contracting "reasonably necessary" for the program to work? The new policy doesn't comment specifically on this prong, and in fact some attorneys have questioned whether an organization capable of meeting the CMS ACO criteria without commercial joint contracting would in effect prove that commercial joint contracting was not reasonably necessary to operations. In practice, however, the FTC and DOJ seem to acknowledge that most organizations won't be able to support the ACO investment on Medicare alone, writing that the "preference to operate in both the Medicare and commercial markets appears to reflect the significant resources and time required to integrate independent provider practices." (We are still exploring this issue further and may have more to say here in the future.)

3. Will the collaboration give participating providers undue market share? This last prong seems to be the primary focus of the new FTC/DOJ policy--the need to ensure that large market share will not cause competitive harm.

Does the new policy apply to CI programs?

The policy applies only to providers looking to meet CMS eligibility criteria for ACOs. It does not apply to all CI programs. The distinction is nuanced, but important: as discussed in an earlier blog post, CI programs can pass antitrust muster for commercial joint contracting without taking on the full range of population management activities needed to qualify and succeed as an ACO. Thus, while CI can be a good way to build the physician network component of an ACO, the terms are not interchangeable. For organizations building a CI program but not yet ready for ACO status, the ACO antitrust policy and new "safety zone" are not yet relevant.

What else is noteworthy about the policy?

A couple of additional points that our team found interesting:

First, for those who read my earlier blog post on whether the FTC or DOJ would play a larger role in ACO antitrust enforcement, the policy--issued jointly--pointedly lays out a vision of collaboration between the two agencies. Prospective ACOs required or choosing to seek antitrust review before applying to the Shared Savings Program will submit the request to both agencies, who "will then determine which Agency shall be the reviewing Agency and will notify the applicant of such." In addition, the two agencies plan to establish a joint ACO Working Group to "collaborate and discuss issues arising out of the ACO reviews," a process that will "allow ACOs to rely on the expertise of both Agencies and ensure efficient, cooperative, and expeditious reviews."

Second, regardless of which agency reviews the ACO application, the policy commits to providing an opinion within 90 days. Some observers have questioned whether this turnaround is truly feasible given the significantly longer time the FTC has typically needed to issue advisory opinions on CI programs, especially if more organizations than expected apply or require review. An issue to watch, to be sure.

For more information

As noted above, we'll likely have more to say in this space about the new ACO rules across the next few weeks and months. In the meantime:

To read the FTC and DOJ policy in full, click here. The policy is currently open for comment; instructions for submitting a comment can be found here.

To read the CMS Shared Savings Program rule, click here. This rule is also open for comment; see the first page for instructions.